Vornado, Related Seeking Chinese Partners for DevelopmentSarah Mulholland
New York City developers including Vornado Realty Trust and Related Cos. are seeking Chinese partners for new projects, according to top executives at the companies.
“We do have aspirations to do some things which would involve Chinese capital and Chinese investors,” Steven Roth, chairman and chief executive officer of Vornado, said at a forum Tuesday hosted by the China General Chamber of Commerce at Bloomberg LP’s New York headquarters. “It’s likely that Vornado would do something important with Chinese investors over the next year or two.”
Chinese institutions are becoming a formidable force in New York City real estate as they seek to invest stockpiles of cash. Beijing-based Anbang Insurance Group Co. bought the landmark Waldorf Astoria hotel in February for $1.95 billion, the largest deal ever for a U.S. hotel. Also that month, the firm agreed to purchase the office portion of 717 Fifth Ave., a 26-story office tower in midtown Manhattan, according to people with knowledge of the transaction.
Chinese companies are interested in developing projects as well as in providing cash, according to Jeff Blau, CEO of Related, the developer of Manhattan’s Time Warner Center and Hudson Yards.
“Many of the Chinese companies don’t perceive themselves just as capital investors,” Blau said at the event. “The conversations are much more about an active partnership.”
Related’s Hudson Yards, a $20 billion undertaking that aims to transform an industrial area at the city’s western edge into a business center and residential enclave, will need capital from around the globe, he said. With more than 17 million square feet (1.6 million square meters) planned, the project is the largest private real estate development in U.S. history, according to the company.
In addition to making deals with Chinese institutions, New York developers are increasingly turning to Chinese individuals who invest in U.S. projects through the federal government’s EB-5 program as a path to legal residency. At Hudson Yards, cash raised through the EB-5 program was critical in financing a platform that will sit over a 13-acre (5.3-hectare) train yard. Related has raised $800 million in funds through the program, Blau said.
Extell Development Co. used $75 million in EB-5 funds for its International Gem Tower office building on West 47th Street, Extell President Gary Barnett said at the forum. It’s getting more expensive to raise cash through the program as competition between developers increases, said Barnett. His company built the One57 condominium tower, which set off a high-end residential construction boom in Midtown.
Luxury condos are at risk of being overbuilt, according to Vornado’s Roth. His company’s project at 220 Central Park South is among at least six skyscrapers aimed at multimillionaires that are under construction in the area around 57th Street. A penthouse at 432 Park Ave., set to open later this year, is under contract for about $95 million.
Blau said Related’s condo projects typically cater to domestic buyers, who usually pay less than $5,000 a square foot. Global investors are the dominant buyers above that price, he said.
“That’s a very different market,” Blau said. “That’s a global market and everything that happens -- oil prices, immigration policy -- will impact your building.”
As U.S. commercial-property values surge to records, led by gains in large cities such as New York and San Francisco, some segments of the Manhattan market may be getting overheated, the executives said.
Skyrocketing prices for New York’s best buildings are the biggest impediment for foreign buyers seeking commercial-property deals in the city, said Extell’s Barnett. The Chinese are wary of repeating the mistakes Japanese investors made in the 1980s when they bought at the top of the market and took huge losses in the following decade, he said.
“Today’s markets are frothy and everybody knows that,” Barnett said. “The bottom line is it’s very very hard to find really good deals today in New York City or in any of the trophy locations in the world. In order for them to come in, they’re going to have to join the crowd and pay up.”